An Evaluation of the Revenue side as a source of fiscal consolidation in high debt economies

Ritwik Banerjee

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: Unsustainable levels of debt in some European economies are causing considerable strain in the Euro area. Successful debt consolidation in high debt economies is one of the most important important objective for the European policy makers. I use a dynamic general equilibrium closed economy model to compute the dynamic Laffer Curves for Portugal, Ireland, Greece and Spain for different class of taxes. The general equilibrium effects of the interaction of labor tax, consumption tax and capital tax is demonstrated. Location of each economy on its Laffer curve suggests that there exists a scope for considerable revenue generation by raising consumption and labor tax rates but no such possibilities exist for capital tax rate. Thus revenue generation with certain tax rates as instruments, may hold a key to successful and sustained debt reduction.

Keywords: Laffer Curve; Public Debt; Portugal; Ireland; Greece; Spain (search for similar items in EconPapers)
JEL-codes: E60 E62 H30 (search for similar items in EconPapers)
Pages: 28
Date: 2013-10-22
New Economics Papers: this item is included in nep-dge, nep-eec, nep-mac, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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